Lisbon to get more lenient bailout rate

PORTUGAL looked likely to get more generous terms on its €78bn (£69.2bn) bailout than either Ireland or Greece yesterday, as the IMF and EU unveiled a package that they warned would “involve sacrifice from the Portuguese people”.

However, the accompanying fiscal squeeze, which aims to reduce Lisbon’s deficit from 9.1 per cent of GDP last year to three per cent by 2013, will throw Portugal into a two-year recession, the government admitted.

The EU and IMF said in a joint statement that the plan was a “trade-off” between targeting growth measures to revive Portugal’s uncompetitive economy, and the budget cuts necessary to enable Lisbon to restore market confidence.

The IMF said that the interest rate on Lisbon’s loan will be between 3.25 and 4.25 per cent. This compares to an interest rate of 5.8 per cent for Ireland and an original rate of 5.2 per cent for Greece, although Athens’ was lowered to 4.2 per cent recently.

The IMF will supply a third of the cash, while the EU?will supply the rest, with €12bn earmarked for the country’s banks.

Jurgen Kruger, who negotiated the rescue for the EU, said: “I will be honest, this is not an easy program, it is a tough programme, necessary, but we consider it fair.”

IMF chief Dominique Strauss-Kahn said: “The first priority is to tackle the longstanding and deep-rooted structural problems that have caused Portugal to have the lowest rate of growth in the euro area over the last decade.”

That would mean scaling down the size of the public sector as a proportion of the economy, he said, amounting to a “fiscal devaluation” that would slash benefits costs.